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THE WAR RISK INSURANCE ACT 

I. INTRODUCTION 

The War Risk Insurance Bill 1 (H.R. 5723) which was approved 
October 6 last is one of the most important items in our list of war- 
time legislation. It embodies a comprehensive program for : (a) the 
support of the families of the men in service; (b) compensation for 
those killed, disabled, or enfeebled in service, together with pro- 
vision for the re-education of the disabled; (c) voluntary insurance 
at low rates, administered by the government. 

Prior to the present Great War governments had taken few 
steps to relieve, distress in the families of soldiers, or to provide in 
advance for the future of those who returned from the front, or 
for their families should they not return. In every past war the 
soldiers and their families have indeed suffered more than perhaps 
any other section of the population. There was some relief by 
the individual states during our Civil War, 2 but decentralized 
administration combined with scanty knowledge of scientific 
relief decreased the effectiveness of the aid offered. The pension 
system adopted by the government has been notoriously abused: 
the five billion dollars spent for this purpose have been used for 
political aggrandizement rather than for adequate relief. 

All the belligerent countries, realizing the necessity of protecting 
living standards at home and of freeing the soldiers from anxieties, 
have provided some form of government aid to the families of men 
in service. The amounts of these allowances vary widely, but they 
are usually graduated according to the size of the family. 3 In 

1 The War Risk Insurance Act here under discussion is to be distinguished from 
the War Risk Insurance Act of September 2, 1914, which pertained to shipping. 

2 See an article by Carl R. Fish, "Social Relief in the Northwest during the 
Civil War," American Historical Review, XXII (January, 1917), 309-24. 

> Canada provides a flat separation allowance irrespective of the size of the 
family. This is supplemented, however, by grants from the Canadian Patriotic 
Fund graduated according to the size of the family and the relative cost of living in 
the locality. For a description of the Canadian system see S. Herbert Wolfe, Care of 
Dependents of Enlisted Men in Canada, Children's Bureau, "Miscellaneous Series," 
No. 10; Paul U. Kellogg, The Patriotic Fund of Canada, American Red Cross Bulle- 
tin 155; H. R. Y. Reid, "War Relief in Canada," National Conference of Social Work 
(1917), pp. 126-39. 

461 



462 JOURNAL OF POLITICAL ECONOMY 

Great Britain and Russia government allowances are paid to the 
wives and children of every man in the service irrespective of eco- 
nomic need, while in other countries aid is given only if the families 
are actually in need of assistance. 1 

In 1916, Congress took tardy steps to relieve the distress among 
the families dependent upon enlisted men in the Army during 
their service on the Mexican border, but the relief offered was poorly 
co-ordinated, 2 and the payments were made irrespective of the 
number of dependents. 

Soon after our formal declaration of war the American govern- 
ment took steps providing for the families of men in service. The 
Council of National Defense appointed Judge Julian W. Mack, of 
Chicago, to draft legislation to provide not only government allow- 
ances but also compensation to the disabled, together with pensions 
for widows and dependents. 

Secretary McAdoo, pursuing an independent investigation, 
called a conference of life insurance officials on July 2 to consider 
whether insurance should be offered by the government or by the 
private companies. The private companies had been compelled to 
levy prohibitive premiums because of the great extra risk and the 
lack of any adequate war mortality tables. In some cases the 
yearly premiums ran as high as $100 per $1,000 of insurance. 3 
At this July conference Vice-President Woodward, of the Metropoli- 
tan Life Insurance Company, alone made a definite offer. He 
stated that his company would write a total of $300,000,000 
worth of insurance at a yearly premium rate of $58.00 per $1,000. 
By a vote of 103 to 4 the insurance men finally approved the 
issuing of insurance by the government. 4 A committee of insur- 
ance experts appointed by Secretary McAdoo to advise the govern- 
ment, however, later expressed itself as opposed to the method of 

1 For a description of foreign systems see S. Herbert Wolfe, Governmental Pro- 
visions in the United States and Foreign Countries for Members of the Military Forces 
and Their Dependents, Children's Bureau, "Miscellaneous Series," No. n. 

2 A total of $6,250,000 was appropriated by Congress for this purpose. The 
allowance varied according to the amounts the soldiers had been previously contribut- 
ing to the support of their families. The maximum monthly grant to any family was 
$50.00. (39 Stat. L., 649, 801, 859.) 

3 Commercial and Financial Chronicle, July 7, 191 7. * Ibid. 



THE WAR RISK INSURANCE ACT 463 

insurance proposed. The nature of this opposition will be discussed 
later in this article. 

Judge Mack, with the assistance of S. Herbert Wolfe, Julia C. 
Lathrop, and others, drafted the bill during the month of July. 
It was then submitted to Secretary McAdoo, who gave it his hearty 
approval; transmitted to President Wilson, who in turn expressed 
his appreciation; and was introduced simultaneously in the House 
and Senate on August 10. Representative Alexander and Senator 
Simmons were its sponsors in the House and Senate respectively. 

In his letter to the President, Secretary McAdoo indicated that 
the bill had two purposes: 

Its main purpose is to grant a reasonable government indemnity against 
the losses and risks incurred in the discharge of a patriotic duty to which the 
government has called and forced the citizens. It aims to accomplish these 
ends by granting a reasonable measure of indemnity against the risk of loss of 
support of the bread-winner, or of life and limb, or present insurability at 
ordinary rates. 

But this was not all, for the Secretary declared, " It ought also to 
check any future attempts at service-pension legislation by enabling 
a man now to provide against impairment through old age, total 
disability, or death resulting from other causes." 

In discussing the question of possible expense, Secretary 
McAdoo said: 

It must be borne in mind that the government will not escape these ex- 
penditures if this plan of compensation and insurance should be rejected, for 
the pension plan would then be resorted to and the cost would likely exceed 
that of the proposed plan. At the same time the pension system would not 
provide the same benefits nor cover the subject in the same comprehensive, 
human, and equitable way. No provision is made in our pension laws for 
family allowances while the men are at the front, nor for rehabilitation, etc. 1 

Plainly then one of the integral purposes of the act was to pro- 
vide a substitute for disability pensions by means of a scientific 

1 In a letter to Judge W. C. Adamson, chairman of the House Committee which 
reported the bill, Secretary McAdoo further said, "This .... insurance and com- 
pensation measure will be a substitute, or should be a substitute, for the pension 
system as applied to the present war, and ought to make impossible, as it will certainly 
make unnecessary, future pension legislation with all its inequalities and favoritism." 
Sixty-fifth Congress, First Session, House of Representatives, Report No. 130, p. 3. 



464 



JOURNAL OF POLITICAL ECONOMY 



system of compensation, and for service pensions by means of volun- 
tary insurance issued at even lower than peace-time rates. 

The opposition at the hearings and on the floor of Congress was 
directed chiefly against the insurance features of the bill. The 
House Committee voted to reduce the amount of insurance which 
the soldier could take out from $10,000 to $5,000, but upon the 
request of President Wilson the original amount was restored. 
When finally approved the one great change from the original bill 
consisted in the replacement of compensation graduated according 
to the army pay, with liberal minimum limits by a scale fixed irre- 
spective of military rank. 

An appropriation of $176,250,000 was made to meet the 
demands occasioned by the act. Of this, $141,000,000 was for 
family allowances, $12,150,000 for the compensation provision, 
$23,000,000 for the insurance fund, and $100,000 for administrative 
expenses. 1 

The administration of the act was given, not to the Pension 
Bureau, as advocated by some, but to the War Risk Insurance 
Bureau. This Bureau had been created in September, 1914, 
to insure vessels and their cargoes, and its functions had been 
expanded by the act of June 12, 191 7, requiring the owners of all 
American merchant ships touching at American ports to insure all 
officers and men against loss of life and personal injury. 

The various features of the bill are so arranged that they dove- 
tail very effectively into one another. The allotment and allow- 
ance provisions protect the families of the men while in service; 

1 Secretary McAdoo, upon the advice of Captain Wolfe, had estimated the 
total expenditures for the first and second years as follows: 





First Year 


Second Year 




$141,000,000 
3,700,000 
5,250,000 
3,200,000 
23,000,000 


$190,000,000 




Compensation for total disability 

Compensation for partial disability. . . 
Insurance against death and disability 


35,000,000 
21,000,000 

112,500,000 


Total 


$176,150,000 


$380,500,000 





t The estimates as to expenditures for insurance were undoubtedly 
derived from the experience of Toronto, Canada, which by May, 1917, 
had issued $42,000,000 worth of insurance, three-quarters of which was 
carried by a municipal fund. 



THE WAR RISK INSURANCE ACT 465 

the compensation given for disability or death protects the soldier 
or his family after he has left service; while the insurance features 
permit the soldier or sailor to provide further protection against 
death or disability in addition to that afforded by the compensation 
clauses. These features will now be taken up in turn. 1 

II. THE ALLOTMENT AND ALLOWANCE PROVISIONS 

One of the first questions that comes to mind is, Why is it neces- 
sary to provide stipends for the families of men in service, when the 
government's policy has been to exempt men with dependents? 
Though the farsighted policy of the administration in this respect 
has made the number of dependent families far fewer than they 
would otherwise have been, it has by no means eliminated them. 
Vast numbers of men in service have dependents. They are: 

(a) married men who were enlisted in either the National Guard 
or the Regular Army and were consequently mustered into service; 

(b) married men who, because of the severity of some local exemp- 
tion boards, were conscripted for service in the first draft; (c) 
married men who enlisted under assumed names, or without the 
knowledge of their wives; (d) married men with dependents who 
nevertheless waived exemption, either because of patriotism or a 
desire to escape from their families; (e) single men who did not 
have dependents at the time of their entrance into service, but 
who, because of the death or disability of some other source of 
support have since become the sole or chief support of parents, 
sisters, etc. 

1 For the text of the act see Public Document, No. 90, Sixty-fifth Congress, First 
Session, H.R. 5723. For fuller explanation of the law and the methods of administra- 
tion see Bulletins of the Bureau of War Risk Insurance: No. 1, Terms and Conditions 
of Soldiers and Sailors Insurance; No. 2, Brief Outline of Family Allowances, Allotments, 
Compensation, and Insurance for the Military and Naval Forces of the United States; 
No. 3, Family Allowances, Allotments, Compensation, and Insurance for the Military 
and Naval Forces of the United States (an explanation of the act by Judge Mack); No. 4, 
Uncle Sam's Insurance for Soldiers and Sailors. An excellent unofficial statement of 
the act is given in A.R.C. No. 207, Handbook of Information for Home Service Sections, 
pp. 30-52. W. F. Gephart's note, "The War Risk Life Insurance Act of the United 
States," Am. Econ. Rev., March, 1918, pp. 195-202, is suggestive in the insurance 
features. 



466 JOURNAL OF POLITICAL ECONOMY 

Furthermore, it is doubtful if the government can maintain its 
policy of exempting men with dependents throughout the war. 
The war, if long continued, will make tremendous demands upon the 
man power of the country, and those at present listed under the 
draft in Classes II, III, and possibly IV may be drawn upon. Some 
system of relief is therefore necessary. 

The bill provides for a system of "allotments" and "allow- 
ances," the former from the men's pay, the latter from government 
funds. The allowance is paid only if a previous allotment has 
been made. 

The dependents are grouped for the purpose of the act into two 
classes: Class A, wives or children. The term "wife" includes a 
divorced wife who has not remarried and to whom alimony has 
been decreed, and a common-law wife with whom the man has 
been openly living for two years prior to the declaration of war. 1 
All the following who are under eighteen or, if over, who are help- 
less, are regarded as children: legitimate children, stepchildren, 
children legally adopted either six months before the passage of 
the act or a similar time before entrance into service, and illegiti- 
mate children whom the father has acknowledged in writing, or 
toward whose support he has been ordered by the courts to con- 
tribute. 

Class B, all others. 

All men who have dependents in Class A are compelled to allot 
a minimum of $15.00 a month and not more than one-half his 
monthly pay. Within this maximum, the man must allot an equal 
amount to that given outright by the government in the form of 
allowances. This allotment cannot be waived by the man himself, 
and it can be waived by the wife only when she produces evidence to 
prove that she is able to support herself and the children without 
assistance from the government. After the allotment has been 
made the government adds an allowance graduated according to the 

1 In England the question whether the de facto or dejure wife should be recognized 
in the payment of separation allowances was most troubling. Indeed the conditions 
disclosed led to the introduction of the new separation bill and a further attempt 
at divorce-law reform. See E. S. P. Haynes, Fortnightly Review (January, 1918), 
pp. 107-12. 



THE WAR RISK INSURANCE ACT 467 

number of dependents. The amounts of the monthly allowances 
are as follows: 

a) Wife, but no children $15.00 

6) Wife and one child 25 . 00 

c) Wife and two children 32 . 50 

d) For each additional child above two 5 .00 

e) If there be no wife, but one child 5 . 00 

/) If there be no wife, but two children 12 . 50 

g) If there be no wife, but three children 20.00 

h) If there be no wife, but four children 30.00 

i) For each additional child over four 5.00 

Men are not compelled to make allotments of their pay to 
dependents in Class B, but if they do so the government will, under 
certain conditions, add an allowance to the allotment. 

The scale of monthly allowances for dependents in Class B 
follows : 

a) For one parent $10 . 00 

b) For two parents 20 . 00 

c) For every grandchild, brother, sister, or additional 

parent 5 . 00 

These allowances, however, will be paid only if members of Class B 
are dependent either in whole or in part upon the enlisted man, and 
if he makes an allotment of pay equal in amount to the allowance 
given. The enlisted man, however, is not required to allot more 
than one-half of his pay. If he is making no allotment to depend- 
ents in Class A, he must assign a minimum of $15.00 monthly, but 
if he is making such allotment he need only assign one-seventh of his 
pay, or a minimum of $5 .00 monthly, in order that such dependents 
in Class B may then receive the regular government allowance. 
The sum of the allotments and allowances to dependents in Class B 
must not, however, exceed the total amount habitually contributed 
by the enlisted man to their support. 

Not more than $50 . 00 can be paid in monthly allowances to the 
dependents of any one man. Should this be insufficient to grant 
allowances to all entitled to them, present wives and children take 
precedence over divorced wives; all dependents in Class A take 
precedence over all those in Class B. Payment of the allowance 



468 JOURNAL OF POLITICAL ECONOMY 

is not automatic, but application must be made for it either by the 
man himself or by the beneficiary. 

It is interesting to note that prior to the passage of this act 
seven states had enacted legislation providing allowances for 
dependents of soldiers and sailors with an average monthly allow- 
ance of $22.50 for the dependent wife and of approximately $7.00 
for a dependent child. 1 The sponsors of the bill indeed clearly 
stated that state grants should be made to supplement the federal 
system when the latter proved to be insufficient locally. 

Excellent as this act is, it does not remove all necessity for 
further financial assistance. There are several groups of depend- 
ents who are not provided for by it: (1) Families of officers. Since 
an officer is not compelled to allot any portion of his pay, no allow- 
ance is made to his family by the government. The supposition 
was that since an officer is a "gentleman," he will surely provide 
for his family. 2 Many officers, however, have not done so, and 
their families are suffering in consequence. (2) Parents, grand- 
parents, etc. , to whom no allotment is made. Since the act does not 
require enlisted men to allot a portion of their pay to their parents or 
other dependents, a large percentage of the single men in service 
are not doing so, even though it may be needed by dependents at 
home. The government, however, offers an inducement to the 
soldier to allot a portion of his pay by giving an allowance, and can 
apply further pressure by means of a clause empowering the Secre- 
tary of War and the Secretary of the Navy to withhold up to one- 
half the monthly pay. This amount is to be treated as a deposit 
drawing 3I per cent interest. (3) Families where the amount of 
the allotment plus allowance is not sufficient to meet their real 
needs. The maximum allowance per family is $50.00 per month; 
this amount, plus the minimum allotment of $15.00, would afford 
an income of $65.00 a month or $780.00 a year. Though this is 
probably sufficient at the present time for most soldier's families, it 

1 Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Michigan, and 
Wisconsin. For the scope and administration of these state systems see Katherine Z. 
Wells, "State Action for Soldiers Families," Survey (September 29, 1917), pp. 570-71. 

3 Judge Mack said, "It was not believed that it was essential to compel an officer 
to do his duty to his family. We could leave that to them." War Risk Bureau Bulle- 
tin, No. 3, p. 9. 



THE WAR RISK INSURANCE ACT 469 

is not sufficient for all. A family with several children, whose head 
has either sought refuge in the Army or has been mustered in 
through the federalization of the militia, will find it almost impos- 
sible to make both ends meet upon such a sum. 

Furthermore, the increase in the cost of living may render this 
allowance inadequate in the future for many families. Investiga- 
tions for the Shipping Board show that the cost of living on the 
Pacific coast increased approximately 7 per cent from October 11 
to February 1. Credit inflation is causing a rapid rise in prices 
which cannot be expected to cease during the war. The govern- 
ment must be prepared to revise the system of allowances should the 
cost of living continue to climb. 1 

Much distress has been caused by the delay in transmitting 
allowances and allotments from the War Risk Insurance Bureau. 
In justice to the Bureau it must be pointed out that the task has 
been literally herculean. The Bureau had employed only some 
forty clerks before the passage of the act; by February 1 its 
officials numbered over eighteen hundred, while by April 15 its 
force had increased to 3,300. Though the act was passed October 
6, Secretary McAdoo has stated that "practically no applications 
for allotments and allowances were received prior to December 1, 
1917." 2 Within two months (from that time) the Bureau received 
approximately 1,170,000 such applications. In 730,000 cases 
investigation showed that "the soldiers had no dependents and 
therefore no allotments were made nor could any allowances be 
granted. Awards were made in 426,000 of the remaining 441,000 
cases." 3 Trouble was encountered in 15,000 cases because of in- 
complete application. By April 6 over 1,700,000 checks had been 
mailed by the Bureau. 

The Bureau was not able to mail the November checks till 
January 14, the December checks were mailed February 7, and the 

1 The failure of the English government to revise adequately its separation allow- 
ances in the face of rapidly increasing prices has been one of the sources of discontent 
in Britain. See Bulletin No. 237 of the United States Bureau of Labor Statistics, 
Industrial Unrest in Great Britain. 

* The Official Bulletin (February 8, 1018), p. S- Published by the Committee on 
Public Information. 

3 Ibid. 



47© JOURNAL OF POLITICAL ECONOMY 

January checks by February 18. The February payments were 
likewise delayed. The work of the Bureau has now been systema- 
tized, and such delay will probably not occur again. 

The Red Cross through its Home Service sections is the logical 
institution to offer supplementary assistance to all those families 
whose needs are not met by the act. It can give the needed 
plasticity and local attention. Perhaps more important than its 
money grants are the possibilities of giving effective social service 
in the form of advice and counsel to the families of enlisted men. 1 

III. COMPENSATION PROVISIONS 

The compensation features of the War Risk Insurance Bill 
are but the logical extension of the principles of social insurance. 
War is a distinctly dangerous trade, and it is but just that the 
employer should provide compensation for injuries incurred by the 
soldiers and sailors. The compensation offered is for diseases in- 
curred as well as for injuries suffered "in the line of duty." The 
contraction of syphilis or ghonorrhea will not, of course, be com- 
pensated, since it results from "wilful misconduct." Unlike 
the allotment and allowance features, compensation is provided for 
officers as well as for men. 

The original bill as drawn by Judge Mack and introduced into 
Congress provided for a compensatory scale graduated according to: 
(i) number of dependents and (2) pay received. For death the 
scale of compensation per month was as follows: 

a) Surviving widow without children, 25 per cent of pay but not less than 
$30.00. 

b) Widow and one child, 35 per cent of pay but not less than $40.00. 

c) Widow and two children, 40 per cent of pay but not less than $50.00. 

d) For each additional child up to two, 5 per cent additional but not less 
than $5 . 00 for each. 

e) One child with no widow surviving, 20 per cent of pay but not less than 
$15 -oo. 

/) Two children with no widow surviving, 30 per cent of pay but not less 
than $25.00. 

1 The opportunities- and problems of home service together with the steps taken 
to meet them by the Red Cross are discussed in an article by the writer in School and 
Society, March 9, 1918, pp. 271-77. 



THE WAR RISK INSURANCE ACT 471 

g) Three children with no widow surviving, 40 per cent of pay but not 
less than $35.00. 

h) For each additional child up to two, 5 per cent additional but not less 
than $10.00 for each. 

*') Widowed mother, 20 per cent of pay but not less than $25.00 

The original scale for total disability was as follows: 

a) Man alone, 40 per cent of pay but not less than $40. 00. 

b) Wife, but no children, 50 per cent of pay but not less than $55 .00. 

c) Wife and one child, 55 per cent of pay but not less than $65 . 00. 

d) Wife and two or more children, 60 per cent of pay but not less than 
$75.00. 

e) No wife, but one child, 50 per cent of pay but not less than $50 . 00. 

f) For each additional child up to two, 5 per cent of pay additional but not 
less than $10.00. 

g) For dependent widowed mother, 10 per cent of pay but not less than 
$10.00 in addition. 

For persons so injured as to be in constant need of a nurse an 
additional sum up to $20. 00 was allowed. The maximum monthly 
payment to the family of any one man was fixed at $200 . 00. 

This basis of compensation upon pay received was attacked 
upon the floor of the House. Representative Black, of Texas, and 
others protested against giving larger stipends to the dependents 
of officers than to the dependents of enlisted men. Mr. Black 
declared that the Mack bill preserved the "distinction of rank 
and pay beyond the borders of the grave." 1 The democratic 
nature of the draft was urged as a reason why discrimination should 
not be practiced against the families of the enlisted men. By a 
vote of 139 to 3 the House approved the Black amendment pro- 
viding equal care for the dependents of officers and enlisted men. 

As the bill passed the House, the following monthly amounts of 
compensation for death were established: for widow and no 
children, $35.00; for widow and one child, $45.00; for widow 
and two children, $52.50; for each additional child, $5.00; for 
one child but no widow, $20.00; two children, $35.00; three 
children, $45.00; for each additional child up to two, $10.00; 
for widowed mother, $30.00. It will be noticed that the new 

1 Congressional Record, Sixty-fifth Congress, First Session, LV, 7719. 



472 JOURNAL OF POLITICAL ECONOMY 

monthly rate was, with a few exceptions, $5 . 00 more than the mini- 
mum provided for under the Mack scale. 

The scale of compensation for total disability also established an 
equal basis of compensation for officers and men. The monthly 
compensations provided for both classes were the same as the 
minimum payments provided for under the original bill. 

When the House and Senate bills went into conference, the 
feature of equal compensation irrespective of rank or pay was 
retained, but the scale was lowered. The scale of monthly com- 
pensation finally adopted follows : 

For death : 

a) For widow alone, $25 . 00. 

b) For widow and one child, $35.00. 

c) For widow and two children, $47 . 50. 

d) For each additional child, $5 . 00. 

e) One child, but no widow, $20 . 00. 
/) Two children, $30.00. 

g) Three children, $40 . 00. 

h) For each additional child up to two, $5 . 00. 

i) For widowed mother, $20 . 00. 

For total disability: 

a) Man alone, $30 . 00. 

b) Wife, but no child, $45.00. 

c) Wife and one child, $55.00. 

d) Wife and two children, $65 . 00. 

e) Wife and three or more children, $75.00. 
/) No wife, but one child, $40 . 00. 

g) For each additional child up to two, $10.00. 
h) Widowed mother, $10.00. 

The final rates, therefore, not only established equal compensa- 
tion for all members of the military and naval forces, but were 
actually lower than the minimum grants afforded in the bill as 
presented by Judge Mack. Equality was obtained, therefore, 
by leveling the compensation of the officers to a lower point than 
that originally guaranteed to the privates. 1 The discussion of the 
wisdom and justice of this measure is given in a later section. 

1 With the exception that in case of death a surviving child without widow receives 
$20.00 instead of $15.00; two children $30.00 instead of $25.00; and three children 

$40.00 instead of $35 .00. 



THE WAR RISK INSURANCE ACT 473 

The committee drawing up the bill was faced with a difficult 
problem in providing compensation for partial disabilities. Com- 
pensation on the basis of temporary total disability would be inade- 
quate, because, while the soldier might be able to go back to work 
within a few weeks, he might also be handicapped for life and 
thus suffer a permanent loss of earning power. Two other methods 
were possible: compensation for a stated number of weeks or com- 
pensation based on the impairment of earning capacity irrespective 
of a time limit. Though the former is the method used by most 
states, 1 its only merit is definiteness and ease of administration. 
The period in which the injured party suffers financially because 
of his injury rarely coincides with the period for which compensa- 
tion is given. Should compensation, on the other hand be based 
on the loss of earning power, there is danger that the injured 
person would not be anxious to rehabilitate himself, for by approach- 
ing his previous earning capacity he would be cutting down his 
compensation allowance. 

The act is based on the principle of compensation for impaired 
earning capacity without a time limit, for it reads: "if and while 
the disability is partial, the monthly compensation should be a 
percentage of the compensation that would be payable for his total 
disability, equal to the degree of the reduction in earning capacity 
resulting from the disability." 

It is further enacted: 

A schedule of ratings of reductions in earning capacity from specific 
injuries or combinations of the injuries of a permanent nature shall be adopted 
and applied by the Bureau. The ratings shall be based as far as is practicable 
upon the average impairments of earning capacity resulting from such injuries in 
civil occupations, and not upon the impairment in each individual case, 1 so that 
there shall be no reduction in the rate of compensation for individual success in 
overcoming the handicap of a permanent injury. 

The plain purpose of this second section is to give the injured 
man every inducement to rehabilitate himself. His compensation, 
since it is based on the "average impairments of earning capacity," 

1 See chart showing details of the compensation laws of the various states, in 
Bulletin No. 203 of the United States Bureau of Labor Statistics, Workmen's Com- 
pensation Laws of the United States and Foreign Countries, p. 128. 

2 Italics are mine. 



474 JOURNAL OF POLITICAL ECONOMY 

is not decreased if he succeeds in raising himself to his former earning 
capacity. 

A further problem is, however, created by the terms of the act, 
namely, what is meant by previous "earning capacity"? Is it 
army pay or pre-war earnings in civilian occupations ? The word- 
ing is not clear upon this point. Dr. Rubinow seems to believe 
that the army earnings are chosen as the base 1 from which impair- 
ments are computed. If this is so, there is a manifest injustice. 
The army pay of the average soldier is not equal to the wages that 
he has been receiving in civil life. To interpret the law in this 
fashion would be to work a great wrong. 

Complete justice is indeed not given by computing the impaired 
earnings from the base of pre-war wages. If the war is to be of long 
duration the soldier will have sacrificed a considerable period from 
industrial life. Had he continued in industry, would not his wages 
have increased markedly because of the experience that he would 
have acquired ? To base compensation upon his earnings prior to 
bis entrance into service does not allow him any compensation for 
loss of potential earning power which he has sacrificed. 

The wording of the act is so loose that the decision as to which 
of these two bases is to be used will probably be made by the 
director of the Bureau. Ideally the standard that should be used 
is that of the wage which the soldier probably would have been 
receiving when he was injured. Practically the determination of 
this wage may be so difficult that it cannot be employed, in which 
case the pre-war earnings should be used. The use of military 
or naval pay as the basis of computation should under no cir- 
cumstances be employed if it is possible to interpret the act 
otherwise. 

The act is noteworthy in providing for medical care. The 
bill grants "such reasonable governmental medical, surgical, and 
hospital services, and such supplies, including artificial limbs, 
trusses, and similar appliances as the director may determine to be 
useful and reasonably necessary." The fact that there is neither 
a time nor a money limit to the amount of medical aid that can be 

1 1. M. Rubinow, "Compensation for Invalids of the War," Survey (September 22, 
1917), P- 543- 



THE WAR RISK INSURANCE ACT 475 

given marks this act as one of the few compensation laws that have 
recognized the necessity of medical care. 1 

The most important contribution which the act makes to the 
theory of workmen's compensation is provision for the rehabilita- 
tion and re-education of the disabled. It thus deals with a vital 
problem that has been almost universally neglected by compensa- 
tion legislation. The disabled person needs, not only a money 
grant, but also training, so that his disability will be the slightest 
possible hindrance to his re-entering industry. 2 Social efficiency, as 
well as justice to the individual demands this. European efforts to 
care for war cripples 3 undoubtedly induced Judge Mack to include 
this provision in his bill. 

There are three ways by which the government puts pressure 
upon the disabled man to accept treatment — one negative and 
the other two positive: (1) If he refuses training his compensation 
is suspended. (2) If he accepts training and improves his economic 
condition, his compensation is not cut down because of his assiduity. 
(3) If he is prevented from pursuing a gainful occupation while 
being trained, he is re-enlisted in the Army for this period. He 
therefore receives army pay and his family is entitled to the family 
allowances and allotments as before. 4 

1 For an analysis of existing provisions for medical aid under workmen's com- 
pensation, and an argument for liberal treatment see I. M. Rubinow, "Medical 
Benefits under Workmen's Compensation," Journal of Political Economy, XXV 
Qune, 1917), 580-620; (July, 1917), 704-41. 

2 The way in which workmen are reduced by serious accidents from skilled to 
unskilled labor is shown in John C. Faries', The Economic Consequences of Physical 
Disability; A Case Study of Civilian Cripples in New York City, Publications of the 
Red Cross Institute for Crippled and Disabled Men, No. 2. 

3 A vast amount of literature has accumulated around the re-education of the 
disabled. McMurtrie's "The War Cripple," Columbia University War Papers, Series 1, 
No. 17, gives a succinct statement of the problem. Perhaps the best source is the 
English periodical Returned to Life, edited by Lord Charnwood; the American Journal 
of Care for Cripples, of which Douglas C. McMurtrie is editor, also contains much valu- 
able material. For a complete bibliography on this topic see McMurtrie, A Bibliog- 
raphy of the War Cripple. Publications of the Red Cross Institute for Crippled and 
Disabled Men, No. 4. 

4 Since this was written a bill has been introduced in Congress at the suggestion 
of the Surgeon General to make the provisions of the Compensation Act apply to 
badly crippled men receiving vocational re-education. Their families would thus 
receive the compensation payable for total disability during the period of re-education 
rather than the allotments and allowances. 



476 JOURNAL OF POLITICAL ECONOMY 

The exact methods to be used in re-educating the disabled are 
left for future legislation. In the meantime the Surgeon General's 
department is making provision for beginning the work while the 
men are in service. 

Several lamentable developments of pension administration 
have been guarded against by the law: (i) In order to receive 
compensation the man must obtain a certificate from government 
medical inspectors within a year from his withdrawal from service, 
stating that he is suffering from injury or disease likely to cause 
death or disability. If death or disability does primarily result 
from such injury or disease, compensation will be paid; otherwise 
not. This prevents the practice which has prevailed of old soldiers 
claiming compensation twenty and thirty years after the Civil 
War for injuries received in that war. (2) Claim for compensa- 
tion must be made within five years after the cause of such com- 
pensation occurred. This has the further effect of preventing 
widows from filing claims as an afterthought. (3) A woman who 
marries a soldier later than ten years after he receives the injury 
from which he dies will not receive compensation from the govern- 
ment. The disgraceful spectacle of young women marrying old 
soldiers for their pensions will consequently be avoided. 

Though Congress passed this bill with all its barriers against 
future pension legislation, it yet raised (by means of a "rider") 
all existing pensions to widows to $25 . 00 a month. That Congress 
intends to turn over a new leaf is therefore not clearly demonstrated. 

IV. INSURANCE PROVISIONS 

The most bitterly contested article of the bill was that pro- 
viding government insurance. The reasons for including insur- 
ance provisions in the bill were two: first, the non-insurability of 
the risks by private companies; second, the forestalling of future 
attempts at service pensions. The war has created two varieties 
of non-insurability: (a) The practical impossibility of soldiers' 
securing insurance from private companies. Many companies 
refuse to write any policies; others have fixed prohibitively high 
premium rates. Few will issue policies for less than $50.00 annual 
payment on $1,000 of insurance; some placed the rate as high 



THE WAR RISK INSURANCE ACT 477 

as $100.00 per $1,000. (b) Many men now in good health will 
come back from the war in such impaired condition that private 
companies will not then insure them. Yet they may not be so 
disabled as to come under the compensation provisions of the act. 
Government insurance is then necessary to protect them. 

The committee of experts from private insurance companies 
appointed by Secretary McAdoo opposed optional insurance and 
favored "increasing the amount of compensation provided, by a 
grant on the part of the government of a stated amount of life 
insurance to every fighting man without any premium." 1 This 
alternative proposal was in effect a recommendation for a lump- 
sum compensation payment in addition to the monthly instalments 
already provided for; it was not insurance in any true sense of the 
term. Mr. Parker in the minority report of the House Committee 
centered his opposition upon the insurance feature and favored 
increasing the compensation. 2 Though some opposition developed 
upon the floor of the House, the insurance section was easily passed, 
only five representatives voting against it. 

The bill provides that every person in service may apply to the 
Bureau without medical examination for from $1,000 to $10,000 
insurance against death or total disability resulting from any causes 
either during or after the war. The insurance provided is thus 
general insurance and not exclusively war insurance. Only near 
relatives can be named as beneficiaries. 3 The United States bears, 
not only the extra mortality and disability cost resulting from the 
war, but the cost of administration also, so that the premiums are 
actually lower than the normal peace-time rates. During the war 
and for not more than five years afterward the insurance is to be 
so-called "term" insurance, holding for successive terms of one year 
with no surrender value. Premiums are to be paid monthly and 
deducted from the soldiers' and sailors' pay. The insured person 
is given the opportunity of converting the term insurance within 

1 Statement by Geo. M. Ide, chairman of this committee, The Nation (February 7, 
1018), p. 158. 

1 House of Representatives, Sixty-fifth Congress, First Session, Report 130, 
Part 2, p. 9. 

3 Parents, grandparents, children, grandchildren, wife, brothers, and sisters. 



478 



JOURNAL OF POLITICAL ECONOMY 



five years after the war, without medical examination, into some 
policy issued by the Bureau. If he does not do so the insurance 
will automatically expire. The Bureau was also empowered by 
the act to designate the forms of insurance for which the term 
insurance could be exchanged, and to fix the premiums. 

The Bureau of War Risk Insurance has stated that the term 
policies may be converted into the following forms: (a) whole- 
life, (b) payment life, (c) endowment, (d) other policies to be 
announced later. 1 Especially significant is the Bureau's state- 
ment that the premium cost upon the converted policies "will be 
a fixed premium without expense charge. This means that it will 
be cheaper than the now published rates of insurance companies because 
the government will not charge for running or overhead expenses." 2 
The government is plainly committed, therefore, to continue to 
bear the cost of administration after the war. 

A time limit of 120 days was fixed in which the men in service 
could apply for the insurance. During this time the government 
provided free and "automatic" insurance to the amount of approxi- 
mately $4,300. 

It had been thought at first that flat-rate premiums would be 
levied irrespective of age, but the Bureau instead graduated them 
according to years. The monthly cost for men of 21 is $0.65 for 
every $1 ,000 of insurance; for men of 31 it is $0. 70 for every $1,000; 
for men of 41, $0. 82 for every $i,ooo. 3 Since the annual premiums 

1 Bureau of War Risk Insurance, Bulletin No. 4, Uncle Sam's Insurance for 
Soldiers and Sailors, p. 5. 

2 Ibid.; italics are mine. 

3 The following table gives the monthly premium cost: 



Age 


Monthly 
Premium 
per $1,000 


Age 


Monthly 
Premium 

per $1,000 


Age 


Monthly 
Premium 

per $1,000 




$0.63 
■64 
.65 
.66 
.67 
.68 
.69 
.70 
0.71 




$0.72 

• 73 

• 74 

• 75 
.76 

• 77 

• 79 
.81 

0.82 












• 87 








.89 




36 










46 




28 


38 










48 










1.08 



















The rate goes up sharply after 50 years, until a man of 65 years pays a monthly premium of $3 ■ 35 
per $1,000 of insurance. 



THE WAR RISK INSURANCE ACT 



479 



will increase every year because of the man's greater age, an induce- 
ment is given for early conversion into some other form of policy. 
The insurance is not to be paid in a lump sum, but in 240 
monthly instalments. Table I shows the monthly income which 
various-sized policies will yield. Thus the widow of a man who 
had taken out the full amount of insurance allowable would receive 
$25.00 monthly compensation and $57.50 insurance, or a total 
of $82.50. A widow and one child would receive a monthly 
total of $92 . 50, and a widow and two children $105 .00 monthly. 

TABLE I 



Amount of 
Insurance 


Payable in 

Monthly* 

Instalments of 


Amount of 
Insurance 


Payable in 

Monthly 

Instalments of 


l,50O 

2,500 

3,000 

3,500 

4,500 

S,ooo 


* 5-75 
8.63 

11.50 
1438 
17-25 
20.13 
23.00 
25.88 
28.75 


$ 5,500 

6,000. . . . 

6,500 

7,000. . . . 

7,500 

8,000. . . . 

8,500 

9,000. . . . 

9,SOO 

IO,000. . . . 


$3I-63 
34-SO 
37-38 
40.25 

43 13 
46.00 
48.88 
Si-75 
54 63 
S7-50 



* Monthly instalments will be payable during the total and per- 
manent disability of the insured even if the injured party lives longer 
than twenty years. 



It had been prophesied by enemies of the bill and feared by its 
advocates that only a relatively small percentage of the men in 
service would take out insurance. The Bureau embarked on a 
vigorous selling campaign. The military organization, the Red 
Cross, insurance agents, and other bodies were enlisted in pushing 
the sale of policies. An officer in every camp was placed in charge 
of the work. Two hundred experienced agents, under the direction 
of Willard D. Straight, were sent to France to conduct the sale of 
policies overseas. Table II shows the progress of the sales cam- 
paign. 1 The time limit was extended from February 12 to April 12 
to allow Major Straight an opportunity to reach all sections of the 

1 These figures have been compiled from the announcements made from time to 
time in the official Bulletin, published by the Committee on Public Information. See 
issues of January 5, 18, 25, and 30; February 4, 9, 12, 16, and 19; March 7; April 17. 



480 



JOURNAL OF POLITICAL ECONOMY 



overseas forces. The two months of extra time therefore allowed 
five billion dollars more of insurance to be issued. 

By February 18, 90 per cent of the men in military service within 
the United States had taken out policies. The remarkable way 

TABLE II 









Total Number of 


Total Amount of 


Date 




Applications for 


Insurance 








Insurance Received 


Applied for 


December 


13, 


IQI7 


200,000 


$1,963,000,000 


January 


4, 


iqi8 


363,000 


3,106,000,000 


January 


12, 


1018 


428,000 


3,633,000,000 


January 


24, 


1018 


530,000 


4,487,000,000 


January 


29, 


1918 


604,000 


5,071,000,000 


February 


1. 


IQ18 


670,000 


5,592,000,000 


February 


11, 


iqi8 


836,000 


7,000,000,000 


February 


18, 


1018 


1,082,000 


8,879,000,000 


March 


6 


IQ18 


1,392,000 


11,256,000,000 


April 


6 


1918 


1,700,000 app. 


14,000,000,000 app. 



TABLE III 



Camp 


Percentage of 
Men Insured 


Camp 


Percentage of 
Men Insured 


Lewis 

Doniphan 

Taylor 

Upton 

Travis 

Sheridan .... 
Custer 

Kearney. . , 

Dix 


99 
99 
99 
99 
99 
99 
99 
99 
98 
98 
98 
98 
98 


9 

6 

3 
3 






8 

8 
7 
5 

1 


Beauregard. . 
Sherman. . . . 

Shelby 

Meade 

Pike 

Merritt 

Wadsworth. . 
Gordon 


98.O 
97-9 
97-4 
97.2 
97.0 
97.0 
96.5 
95° 
95 
95 
93 
93 -o 
92.0 



in which the men in the army camps responded is shown in Table 
III. 1 These figures show how false were the gloomy prophecies 
that not over a quarter of the men would take out insurance. 

The average-size policy issued is one of approximately $8,100. 
The fact that so overwhelming a majority of the men in service 
have taken out insurance removes all excuse for further service pen- 

J The Official Bulletin (February 19), p. 7. The returns from camps Cody, 
Sevier, Hancock, Bowie, McClellan, and McArthur were not sufficiently complete to 
give the percentage of men insured. 



THE WAR RISK INSURANCE ACT 481 

sion acts. Though no figures have been computed showing the 
average policy per officer as compared with the average policy per 
enlisted man, the fact that the general average so closely ap- 
proached the maximum indicates that the difference between 
officers and men cannot be marked. This refutes the opinion 
advanced by Mr. Chamberlain that a $5,000 insurance policy would 
seem entirely unnecessary to most of the enlisted men. 1 

v. SUMMARY 

This act is more comprehensive and liberal than that of any 
other belligerent country. It not only protects the family of the 
man in service and compensates them should he die or be totally 
disabled, but protects the single man as well who has been disabled. 
The man who is partially disabled is given a money grant as well as 
every inducement and opportunity to educate himself. It affords, 
moreover, an opportunity for the enlisted man to provide greater 
protection for his family by offering him insurance at low rates. 
Children who upon reaching eighteen years would pass from under 
the compensation provisions can now be insured a good education. 
Brothers and sisters can be provided for as well. In short, the 
act enables the standard of living of the families of men in service 
to be maintained and in some cases actually to be raised. 

The more ultimate effects of the act are no less striking. It 
removes the necessity and should remove the possibility of both 
disability and service-pension legislation. That it will work a revo- 
lution in the insurance business of the country is evident. The 
insurance on the books of the Bureau on April 6 was nearly four 
times as great as that of the largest commercial life insurance 
company in the world and more than one-half of the total amount 
of life insurance carried by private companies in the United States. 3 
With the addition of future drafts the amount will swell still fur- 
ther. Within a year probably between twenty and thirty billions 
of dollars of insurance will have been issued. Not only has the total 

'Joseph P. Chamberlain, "Insurance for Soldiers and Sailors," Survey (Sep- 
tember 8, 1917), P- S°5- 

* This includes neither the marine insurance carried by the Bureau nor the insur- 
ance of men in the transatlantic merchant marine. 



482 JOURNAL OF POLITICAL ECONOMY 

amount of life insurance been increased in this fashion, but the 
average governmental policy is of an unprecedented size. The 
average sailor or soldier who has government insurance carries 
nearly five times as large a policy as does the average New York 
holder of life insurance. 

Moreover, the importance of insurance has been impressed upon 
the country as a whole and upon the men in service in particular in 
such a manner that it should result in future expansion of the 
insurance business. 

The act undoubtedly means the continuance of the government 
in the insurance business after the war. Private companies will 
find the government to be their most serious competitor, and the 
solution may be the creation of a state monopoly in the insurance 
fieid. Secretary McAdoo indeed seems to favor increasing the field 
of state insurance. 1 

Admirable as the act is, there are many defects which must be 
remedied and many administrative problems which must be solved 
before it can achieve all the purposes which it was designed to 
accomplish. Perhaps the most important defects are: (i) Officers 
are not compelled to allot pay to their wives or children. (2) Allot- 
ment of pay is not compulsory to dependent parents. (3) Compen- 
sation for death or total disability is not given to dependent 
brothers and sisters or to other near relatives. The force of this 
objection is somewhat negatived by the power of protecting these 
relatives by government insurance. (4) Compensation is given 
irrespective of pay. This violates all the canons of good compensa- 
tion legislation (for compensation should take into consideration 
the previous standard of living). It is also likely to prove an 
entering wedge for future pension acts, for it will be an easy matter 
for a future Congress to raise the compensation scale. (5) The 
provision for basing compensation for partial disability is so loosely 
worded that much ambiguity is created. (6) The government has 

1 See his letter to George M. Ide, president of the Home Life Insurance Com- 
pany, in which he practically charged Mr. Ide with conducting a propaganda against 
the Insurance Act, and concluded by saying, "If a propaganda against the War Risk 
Insurance Bureau is beginning I shall be very happy to meet it. Such a propaganda 
may produce many beneficial effects in widening the field of the War Risk Insurance 
Bureaus activities." — The Official Bulletin, March 6, 1918 (italics mine). 



THE WAR RISK INSURANCE ACT 483 

assumed all the overhead expenses of the insurance business both 
now and after the war. Some of this expense, such as the original 
medical examination, and the soliciting of insurance by officers and 
other government officials, is plainly in the nature of a joint cost and 
impossible to segregate. But part , such as the expenditure attached 
to the War Risk Bureau, can be easily segregated. To make no 
charge for this during the war may be justified because of the vital 
need for insurance. It is, however, impossible to approve of con- 
tinuing this practice after the war. This would really amount to a 
subsidy to the government insurance business. It would thus give 
a false picture of the efficiency of government methods and would 
give government insurance an unfair advantage over private com- 
petitors. The case of state v. private insurance is one that should 
be decided in a fair field. 

The chief problems of administration which must be solved are: 
(1) Working out, pending legislative action, of the standard to be 
used in computing the previous earnings of those partially disabled. 
As has been pointed out, the pre-war earnings seem to be the best 
base which can reasonably be applied. (2) Determining the " aver- 
age" impairments of earning capacity. This is a task that will 
seriously tax actuarial skill. (3) Preventing policies from being 
abandoned after the war. Such a dangerous trade as war inspires 
men to take out insurance. With the coming of peace the burden 
of paying even such low premiums as those attached to the govern- 
ment policies will prove irksome to men who are carrying as much 
as $8,000 and $9,000 of insurance. A large percentage of the men 
will be tempted either to abandon their policies or to reduce them 
to a smaller figure. The Bureau must pursue a comprehensive 
and prolonged program of education if it wishes to avoid this proba- 
bility. 

Taken in its entirety the act bids fair to prevent the injustice 
which occurred during and after our Civil War from being repeated. 
It is also a very significant item in the state-socialistic program that 
is being adopted in America under the stress of war conditions. 

Paul H. Douglas 

Reed College